How Eddie Alvarez and Bellator arrived at dueling lawsuits

As Eddie Alvarez said, it was the Viacom-owned Bellator MMA that first made it to court in a legal dispute between the two parties.

On Monday MMAFighting.com interviewed the ex-lightweight champ on camera, and he revealed Bellator sued him and that he expected to go to court.

Three days prior to the interview, his lawyers had done that for him. They filed a nine-page complaint against the tournament-based promotion in Bergen County Superior Court of New Jersey.

Bellator had already filed a 121-page document in New Jersey District Court, which included contract offers from both Bellator and the UFC. Alvarez’s complaint did not, which left review of the contracts at the court’s discretion.

Bellator’s complaint, which is dated Dec. 31, accused the ex-champ of breach of contract and five unnamed parties of tortious interference. Its central claim was that Alvarez has not honored a clause that allowed the promotion to retain his services by matching an offer almost word-for-word from UFC parent company Zuffa. Alvarez’s reps countered that Bellator didn’t actually match the deal.

Alvarez now wants a judge to declare him free to go to the UFC while Bellator wants an order to keep him in the fold.

As the fighter sits in limbo, the dueling legal actions reveal a potentially lucrative future. In offers virtually identical on paper, they guarantee the fighter a $250,000 signing bonus, an eight-fight deal pyramiding from a starting point of $140,000 in combined show/win money and multiple opportunities to commentate, as MMAjunkie.com (www.mmajunkie.com) first reported. If he’d manage to win all eight of his fights, the 28-year-old lightweight would stand to make $1.65 million guaranteed.

After receiving and copying Zuffa’s offer, however, Bellator upped the ante and offered Alvarez $125,000 in additional incentives.

There were, nevertheless, intangibles to the contract. While the Zuffa and Bellator deals both disclosed their intentions to give Alvarez a title shot and a pay-per-view fight in his first outing, both stopped short of a guarantee.

And that lack of a guarantee, coupled by a promise to have him fight on network television, is why the two sides diverged.

Best intentions

Negotiations to keep the popular lightweight in Bellator began nearly the moment he stepped out of the cage after knocking out Patricky “Pitbull” Freire at Bellator 76, Bellator Chairman and CEO Bjorn Rebney earlier said.

Rebney and Alvarez met after the October fight in a bar near the arena and discussed a possible new deal. By the end of the meeting, Alvarez, who’d fulfilled his final obligation for Bellator with the victory, agreed to meet with Spike TV executives. The cable network had become intimately involved with the promotion after Viacom purchased a controlling stake in Bellator in 2011, and it would help outline what the company could offer.

Alvarez, who, according to Bellator’s suit, banked a $150,000 signing bonus in his previous deal, told several media outlets that he would give his boss a chance to bring a deal that would compete with one offered by the UFC, which repeatedly had expressed interest in Alvarez’s services as his contract wound down.

Rebney later expressed confidence that with Viacom’s presence, Bellator could present a competitive contract that would match the industry-leader. He mentioned signing bonuses, back-end compensation and ancillary promotional opportunities that would give Alvarez a chance to up his earning power.

In late October, Rebney announced that he would honor the Alvarez’s request to waive a 90-day exclusive matching period in the fighter’s contract. Alvarez had declined the promoter’s initial offer and wanted to see what the open market would bear. Citing a longtime friendship with Alvarez, Rebney agreed.

If Alvarez got the deal of ex-middleweight champ Hector Lombard, who fetched a $400,000 signing bonus in addition to a $300,000 starting purse and pay-per-view points, Rebney said it would make him the highest-paid lightweight in the business.

Lawyer up

On Nov. 1, Bellator’s legal department informed Alvarez that it had formally modified his promotional agreement to waive the 90-day exclusive period. But there was a catch: He could only negotiate an offer with Zuffa. Other suitors were subject to the original term, which preceded a one-year matching period.

Bellator reminded Alvarez he was required to immediately forward any offer from Zuffa. The promotion had 14 business days to match.

And it included another reminder: “Should Bellator elect to match the offer, no further offers may be entertained by you and you will be obligated to contract with Bellator on the terms that Bellator agreed to match.” (Rebney said on Thursday that such language is standard in contracts for both Zuffa and Bellator.)

The UFC responded within the next two weeks. A letter from Zuffa, dated Nov. 14, documents a signing bonus offer of $250,000, payable in three installments.

Two weeks later, Alvarez’s attorney, Neal Tabachnick, forwarded a 23-page Zuffa promotional agreement, in addition to the signing bonus letter, to Bellator’s lawyers. Tabachnick advised the promotion that the materials were strictly confidential and recommended they be destroyed after being reviewed.

“As you know, Bellator has 14 business days from today within which to assert in writing that it will match all terms of this submitted Collective Proposed Agreement with Zuffa, LLC,” he wrote. “Otherwise, Eddie Alvarez is free to enter into this Collective Proposed Agreement with Zuffa, LLC.”

But Bellator wasn’t about to let that happen. On Dec. 13, the promotion sent Tabachnick two copies of a contract that virtually duplicated Zuffa’s offer. A “redline” version crossed out all mentions of Zuffa and replaced them with Bellator, and a “clean” version simply replaced “Zuffa” references with “Bellator.”

Bellator lawyer Patrick English noted that no significant alterations had been made to the contract, though he noted the omission of a notice related to Zuffa’s drug testing policies and a change of legal jurisdiction from Nevada to New Jersey, which is the legal jurisdiction used in Alvarez’s previous Bellator contract. (Bellator offered to keep Nevada if objections were raised.)

English again reminded Tabachnick that Alvarez was bound to accept the offer if Bellator matched Zuffa’s deal. But English also introduced three incentives to sweeten the deal: a behind-the-scenes show, a coaching spot on the second season of Bellator’s reality show, and a guest-host spot on Spike TV. The additions promised to put an extra $125,000 in Alvarez’s pocket.

Tabachnick zeroed in on the PPV clause in Bellator’s offer. According to the Bellator complaint, he contacted the promotion on Dec. 14 to receive assurances that Alvarez’s first bout would, indeed, be on PPV.

Bellator clarified that Zuffa’s offer did not guarantee, but merely intended, to give Alvarez such a fight out of the gate, according to its complaint. Bellator, nevertheless, offered the same deal and said it would supply the date of the proposed PPV event if a confidentiality agreement was signed.

The talk didn’t sway Tabachnick. Two days later, on Dec. 16, he notified Bellator that they had failed to match Zuffa’s offer, and he cited a clause that promised Alvarez a fight on Spike TV during the term of the deal and another that stated Bellator’s intent to offer him a title shot and PPV bout in March 2013.

Both, of course, had been copied from Zuffa’s contract. One guaranteed Alvarez a fight on network TV with FOX, and the other stated Zuffa’s intention to give him a UFC title fight in March 2013, as well as make him eligible for PPV points in his first bout as long as the PPV was “broadly distributed in the U.S., Canada, or any other territory.” (If Alvarez became champion, he would continue to benefit on the back end.)

But Tabachnick saw different value in the offers.

“FOX TV is a free major national broadcast network, while Spike is a for-charge basic cable network with a fraction of the viewership, exposure, ratings and share of FOX TV,” he wrote.

The attorney also noted Rebney’s promises for a PPV debut were contradicted by statements to Alvarez and to the media, which, at best, cast serious doubt of an imminent Bellator PPV event.

And he also doubted Bellator’s ability to make money on a PPV offering its first time out.

“It very likely would not even reach the minimum threshold number of buys required for Eddie to receive any revenue from same, making any assurance of a Bellator PPV event illusory as a match for the Zuffa, LLC meaningful offer,” Tabachnick wrote, “with the result being that Eddie is free to enter into the Zuffa Proposed Agreement at 12:01 am on December 19, 2012.”

Unsurprisingly, Bellator went on the defensive the day before the supposed cutoff. In a letter to Tabachnick, English first attacked Zuffa’s FOX offer while stating it was “not much of a commitment” and that the company could instead place Alvarez on FX or FUEL TV, the UFC’s cable partners.

The Bellator lawyer argued that Spike TV’s broadcast reach was only separated by approximately 10 million homes despite the fact that FOX is an over-the-air network and Spike TV is on basic cable, which makes the former free and the latter not. He wrote that unlike on FOX, Alvarez’s fights would be broadcast on Spike TV and replayed twice, which would drive up their value.

English also cast Viacom and Spike TV as a key players in the UFC’s explosive growth on PPV, due largely to the UFC’s partnership with Spike TV from 2005 to 2011. He assured Tabachnick that Bellator would hold a PPV event in March.

“The numbers of buyers for UFC pay-per-view (events) have decreased by virtue of the UFC going to Fox from the time it was with Spike, a statistic that is available to all,” he wrote. “Bellator’s advisors are not neophytes in the pay-per-view field and, in fact, have managed some of the largest pay-per-view events of all time for promoters.”

But if the message wasn’t getting across, English ended his retort with a subtle threat of legal action if Alvarez declined to sign Bellator’s offer.

“As much as [Bellator] wants a fully amicable relationship it can be pushed no farther and will defend its rights and will, if necessary, seek to enforce its rights,” he wrote.

The day before UFC 155, which took place Dec. 29, UFC President Dana White, who’d previously hinted at possible negotiations with Alvarez, told reporters that the fighter’s situation was “going to get ugly.”

See you in court

Bellator’s matching clause, known as the “first/last refusal,” is front and center in the complaints of both the fighter and promoter. But its usage leads to different conclusions.

Bellator, which states it “resurrected” Alvarez’s career by booking him fights against Shinya Aoki and Freire, believes it binds the fighter to the promotion because it did not significantly alter Zuffa’s offer. FOX and Spike TV are comparable broadcast entities, and both deals lack guarantees on title fights and PPV dollars, Bellator contends.

Alvarez’s reps state the clause doesn’t allow Bellator “the ability or right to make any changes, material or otherwise, to the terms and conditions of the UFC Offer and be deemed a matching offer, and that, in any event, the Bellator offer did not match the UFC offer.”

If the parties go to court, the stage is set for a debate on their value.

Bellator asks the court to prevent Alvarez from fighting for any other promoter, declare he is under contract with Bellator, and force him to pay monetary damages and legal fees. Alvarez, meanwhile, wants a declaration that Bellator didn’t match Zuffa. He also wants permission to sign with the competitor “without interference.”

It’s unclear whether the five unnamed parties in the tortious interference claim will be revealed.

Alvarez, who said he was sued 30 minutes after a “settlement meeting” with Bellator, said he would be willing to re-sign with his former boss if Bellator’s offer truly matched that of Zuffa’s.

“The issue has to do with being fair,” he said. “If the contract said at the end we have a chance to match this contract, I said OK to that four years ago and I’m accountable for that. In our eyes, this is not a match. This difference is a lot of money, and its hard to sign on the dotted line.”

Timeline

Oct. 12, 2012: Alvarez knocks out Patricky “Pitbull” Freire at Bellator 76, which, according to the promotion, falls on or about the day his exclusive, 90-day negotiating period begins. Alvarez and Rebney meet afterward to discuss a possible new contract; Alvarez agrees to meet with Viacom execs to discuss details.

Nov. 1, 2012: Bellator notifies Alvarez that it has waived the fighter’s exclusive negotiating period, which allows him to field a new offer solely from the UFC within the 90-day period.

Nov. 14, 2012: The UFC notifies Alvarez of a $250,000 signing bonus, payable in three installments, to be guaranteed upon signing a new promotional agreement.

Nov. 28, 2012: Alvarez attorney Neil Tabachnick forwards a UFC promotional agreement to Bellator and reminds the promotion it has 14 days to match the deal.

Dec. 11, 2012: Bellator and Spike TV formally announce a new broadcast deal. During a media conference call, Rebney says the promotion doesn’t have “definitive plans to do a pay-per-view.”

Dec. 13, 2012: Bellator sends Alvarez’s attorney two versions of its matching offer, which includes a signing bonus and three additional ancillary opportunities for the fighter, who is asked to sign the deal.

Dec. 14, 2012: Alvarez’s lawyer calls Bellator and asks for assurances that the fighter’s next bout will be on PPV.

Dec. 16, 2012: Tabachnick notifies Bellator that it has failed to match Zuffa’s offer in several “material and meaningful respects” and claims the fighter is free to sign with the promotion on Dec. 19.

Dec. 18, 2012: In an email to Tabachnick, Bellator argues that it has matched Zuffa’s offer and threatens legal action if Alvarez doesn’t sign.

Dec. 31, 2012: Bellator files suit against Alvarez in New Jersey federal court while alleging breach of contract and tortuous interference from five unnamed parties. (The complaint is logged on Jan. 3, 2013.)

Jan. 4, 2013: Alvarez files suit against Bellator in New Jersey state court and asks for declaratory relief and an injunction against the promoter.

Jan. 7, 2013: Alvarez reveals to MMAFighting.com Bellator ia suing him, after which Rebney gives multiple interviews in which he reveals several terms of the Zuffa contract Bellator claims it matched.

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